EUR/USD risk reversal: Pullbacks to be short lived, the market remains bullish
|EUR/USD clocked a high of 1.1777 on Thursday before falling to 1.1650 levels on the back of strong US durable goods orders report. The pullback is nothing to worry about as the market remains bullish on the EUR/USD pair. The outlook is positive for the next quarter if we take into consideration the rise in the three-month 25 delta risk reversal.
EUR/USD & 3-month 25 D RR
The three-month 25 D RR turned positive on July 20 and rose to a high of 0.125 on Thursday. The steady rise into the positive territory indicates the demand is high for the bullish bets. EUR bulls need not fear unless there is a marked deterioration in the 25 D RR.
US-German 10-yr yield spread
- The spread has improved in favor of the USD from 170 basis points (July 20) to 178 basis points as of yesterday.
- However, the falling channel is still intact.
- Only an upside break of the falling channel could mean the EUR/USD has topped out. An additional confirmation of the trend reversal would be a marked deterioration in the risk reversal.
- As long as these two conditions aren’t satisfied, there is little reason to fear. The spot looks set to test the monthly 50-MA level of 1.1890.
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